Tatum Hollows, at just six years old, made many trips to GPs and hospitals with her worried mother, and even had a head X-ray that the family now knows clearly showed something was seriously wrong. Yet doctors failed to diagnose her brain tumour until so late that it robbed her of her sight. Her mother Sharon, a headteacher, says that notwithstanding her "very good salary", without her child's legal aid, she could not have risked suing the NHS in the case that won her blind daughter more than £1m in compensation and secured her financial future.

Hollows is one of 6,700 people a year who bring medical compensation claims. The NHS pays out nearly £800m (about 1% of its budget) in costs and compensation, while the Ministry of Justice (MoJ) spends nearly £19m on legal aid on medical negligence cases (which goes only to the poorest adults and all children). But access to justice for people damaged by medical negligence is under threat, according to the charity Action Against Medical Accidents (AvMA).

Hollows's legal fees, for which she would have been liable had the case been lost, "approached £300,000, because only a long, in-depth investigation and expert [medical] evidence could pinpoint the failure", she says. And there was no knowing how strong the case was before the expensive investigation. This is what makes it almost impossible for lay individuals to bring cases without financial aid – as only (expensive) medical specialists can judge whether what has happened is very unfortunate or actually negligent.

In November, the government proposed swingeing cuts to legal aid. As part of these £350m cuts, by 2015, legal aid will no longer be available for clinical negligence cases (with a few exceptions that come under human rights legislation). The MoJ maintains that complainants will be able to use no-win, no-fee lawyers instead.

But ministers are also proposing a clampdown on incentives for no-win, no-fee lawyers under conditional fee arrangements, following the publication of Lord Justice Jackson's review of civil litigation costs in January 2010. This would end the payment of success fees, which are currently added to the costs paid by the defendant in winning cases. Success fees are intended to compensate the claimant solicitors for the cases that earn them nothing.

This "double whammy" of reforms – removing legal aid and simultaneously ending incentives for lawyers to take on more than just the easiest cases on a no-win, no-fee basis "could turn the clock back 30 years both in terms of justice and patient safety", says Peter Walsh, chief executive of AvMA.

Already, some no-win, no-fee firms say this combination would drastically reduce the number of medical negligence cases they accept. If both of these reforms go ahead his firm is "likely to halve the number of medical negligence cases we take on",says Russell Levy, head of the medical negligence department at solicitors Leigh Day & Co.

But crucially, Jackson's recommendations were based on the assumption that legal aid remained. "I stress the vital necessity of making no further cutbacks in legal aid availability or eligibility," he said in his report. "The overall costs of litigation on legal aid are substantially lower than the overall costs of litigation on conditional fee agreements."

Jackson's review maintains that keeping legal aid would save the government more money than it would gain by cutting it. In "a vast swath of litigation" – including medical negligence where the defending side is usually the NHS – "the costs of both sides are ultimately borne by the public, [so] the maintenance of legal aid at no less than the present levels makes sound economic sense and is in the public interest", it says.

"There is a moral case for it [legal aid] to be retained at least for babies damaged at birth and the catastrophically injured," says Steve Walker, chief executive of the NHS Litigation Authority (NHSLA). He believes legal aid is "the cheapest and simplest" way to fund cases. He says that many people already have trouble finding a lawyer, but that he does not believe the removal of success fees will make the situation any worse, and he says it will save the NHS money. He does agree with the claimant lawyers, though, that medical cases can be particularly complex and require specialist legal advice. "It is essential," he says, "to work out a protocol that at least allows for preliminary investigation."

The AvMA agrees. If legal aid were provided for the investigatory phase of all cases, the weak claims could be weeded out fairly and stronger cases could proceed under reformed conditional fee agreements, preferably with incentives (for both sides) to settle quickly, it argues.

The problem, says Walsh, is that legal aid comes out of the MOJ budget, while most success fees are paid by the NHS (the health budget). But he says there are alternatives to expensive litigation, such as "no-fault" schemes and fast-track systems such as the NHS Redress Scheme. This was designed to settle smaller claims relating to hospital treatment out of court. The lawyers would receive fixed fees from the NHSLA and the complainant would not have to pay huge costs. An act of parliament was passed in 2006 paving the way for its implementation, but since then little progress has been made. Jackson recommends that the Department of Health should now allow this scheme to become operational.

"These cases are about real people whose lives have been ruined and who deserve justice," says Walsh. "With a bit of creative, joined-up thinking, it is possible for the government to save the necessary money without jeopardising access to justice and patient safety."

The MoJ is considering the responses to its consultation on the proposed changes. "It is important that victims of medical negligence have access to legal representation," says a spokesman.

For Hollows, it's not just about access to justice, it's also about ensuring that cases like her daughter's act as a "wake-up call" to doctors and medical institutions, and help to change practice and improve safety. "It is often only when a case is won," says Walsh, "that anyone recognises there has been a problem and patient safety is addressed."